In 1992, Procter and Gamble’s (P&G’s) biggest and most profitable category was dispensable diapers, which represented 16 percent of the organization’s overall incomes and more than 20 percent of its profits. Be that as it may, between 1988 and 1993 P&G suffered a market share drop from 50% to 38% (of the $4 billion) due to a change in competition more specifically in the private-label brands with favorable retail margins.
In this case, Walmart has decided to partner with Walmart and supply them with private-label diapers. This vertical integration helps Wal-Mart build a brand at a considerably lower price. P&G believed that they had a win-win situation with their partnership with Walmart through there P&G innovative system where they had computerized checkout scanners and retailers were able to measure product-handling costs from the warehouse to the check-out line. Although this changed when following P&G success with Wal-Mart venture, P&G formed relationships with several other retailers which in turn made Wal-Mart formed partnerships with other manufacturers.
In this case vertical integration was used as a way to go around unsatisfactory results from or relationships with organization. One of the three dated for November 1991 (prior to the launch of the private-label products) required vendors to eliminate outside sales reps and deal directly with Wal-Mart. It’s believed that P&G went wrong when they began to partner with outside vendors and not deal directly with Wal-Mart. Wal-Mart definitely thinks they will be profit from: motivation, specialization, survival of the fittest, economies of scale, coverage and independence. For Wal-Mart to replenish a downstream channel member’s supplies just at the time it becomes necessary requires very close cooperation between Wal-Mart and P&G. Essentially, Wal-Mart demanded a relationship with P&G and the cost (although the accounting cost and opportunity) of a failed supply arrangement makes these relationships essential.
Secondly, P&G allowed for Wal-Mart to take advantage of P&G system. They have developed a system where suppliers, manufacturers, distributors/warehouse and retailers are all traced on a timely, accurate and paperless flow which made the supply chain efficient. P&G system improved inventory management, logistics, and forecasting which was not replicated by any other competitor. Wal-Mart took advantage of this and took it their other suppliers, increasing P&G competition. Due to how big Wal-Mart is, they aren’t able commit to a focused analysis of each product, this made suppliers able to. Also saving Wal-Mart, a tone in merchandising costs. Wal-Mart most have also benefit as they should cause suppliers to compete with each other as to who can make Wal-Mart more innovative.
What P&G should do moving forward is align their goals to fulfil Wal-Mart letters. Although this begins with Walmart and P&G coming together to share a vision. There problem-solving assignments need to become joined. This can be done through sharing information more openly, allowing them for better goal setting and achieving these goals. The sharing of information includes sharing market data, and consumer data with the channels, displaying all this information with the channels allows for a co-operative decision which is important for vertical integration Ultimately strengthen partnership Wal-Mart partnership by establishing guidelines for information exchanged regarding for information exchange regarding marketing strategies. This will increase cooperative-advertising support and logistics strategy
In addition to strengthening their relationship with Wal-Mart, they need to come up with an even more innovative development. Technology is very important between manufacturers and suppliers. Wal-Mart is prioritizing a supplier with an effective forecast plan and it seems that P&G has a problem forecasting their products. P&G must think of a development where they are able to forecast their demand, allowing Wal-Mart to relax from creating purchase orders and invoices. This will not only fix the relationship between Wal-Mart and P&G, but this is a win/win situation as well. This will allow for Wal-Mart to remove products that are not moving and add winning products to their shelves, increasing sales and profitability. In addition to that, P&G should also find more customer-based technology that can track more of the consumer habits.